It was a bounce back quarter for investment markets.  Despite the strong finish, 2022 was still a difficult year overall for markets with the S&P 500 finishing the year with a total return down 18.1%. This was the worst year for the index since the financial crisis in 2008. The story was similar in bonds with the Bloomberg U.S. Aggregate Bond Index down significantly in 2022 with a decline of over 13%. To put this bond performance in context, the Bloomberg U.S. Aggregate Bond Index has been around since 1976. Prior to 2022, the index had experienced only four calendar years with a negative return, with the previous worst being down 2.9%.  This year the index was down over four times the previous worse year dating back 47 years.  When you have both stocks and bonds down significantly in the same year it is clearly a difficult investment environment.   One bright spot for both the quarter and the year on the whole was commodities.  This was highlighted in the NERT Model Allocation through the PIMCO Commodity Real Return Strategy Fund, which was up 3.6% for the quarter and 8.9% for the year.

As we have discussed at length over previous commentaries, inflation and the actions from global central banks around the world in response to this inflation was the key story in 2022.  This past quarter the Federal Reserve raised the federal funds rate by an additional 1.25% (0.75% in November and 0.50% in December) for a total of 4.25% in raises for the year in 2022.  There is concern that the speed and size of these raises could push the economy into a recession here in the United States and globally.  The positive news is inflation in the US and around the world has begun to trend down.  The Consumer Price Index (CPI) in the United States peaked in June of 2022 at 9% and finished the year at 6.4% in December.  If this trend can continue, the Federal Reserve can slow the pace of raises and then pause additional raises, which could provide the stability for a bounce back year for both stocks and bonds.                                                                                                                                                                                                      4^th QTR                1YR                    3YRS                      5YRS

Stable Income                               3.04%                -10.39%                 0.42%                      1.68%

Conservative Income                    4.53%                -12.38%                 0.99%                      2.61%

Traditional Pension                       6.55%                -16.67%                 2.16%                      4.16%

Equity Oriented                             8.05%                -17.38%                 4.18%                      5.85%

NERT Model Allocation – Choices for every investor

The NERT model allocations are designed to help participants build diversified allocations to capture the major market sectors and a variety of management styles. They are offered to aid typical participant needs for diversified, risk-adjusted allocations. NERT rebalances allocations on a regular basis attempting to keep a consistent risk and asset posture. The allocations will maintain some exposure even in underperforming classes. Diversification, by definition, means not all assets can have positive performance every period. The NERT model allocations are designed to allow any investor to participate in proven ways to reduce risk and improve returns over longer periods.

Given the current limitations on withdrawals from the Principal U.S. Property Fund, we created model allocations that removed the Principal U.S. Property Fund.

Andrew Casteel, CIO, CFP

Acorn Financial Advisory Services, Inc.